Monday, December 21, 2009

Ben Bernanke is Time's Person of the Year (Frank Rich Begs to Differ)

Time chose Ben Bernanke as their Person of the Year. Michael Grunwald's article (here) argues that 2009 was all about the economy and that Bernanke has been the key figure in influencing economic developments: "his creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression."

In yesterday's Times, Frank Rich (here) has a powerfulrejoinder to the selection of Bernanke:

The Fed chairman was just as big a schnook as every other magical thinker in Washington and on Wall Street who believed that housing prices would go up in perpetuity to support an economy leveraged past the hilt. Unlike most of the others, it was Bernanke’s job to be ahead of the curve. Yet as recently as June of last year he could be found minimizing the possibility of a substantial economic downturn. And now we’re supposed to applaud him for putting his finger in the dike after disaster struck? This is defining American leadership down.

Ouch! And, bravo! I fail to see why Bernanke has received so much praise. He (along with Timothy Geithner) were at the helm making decisions, in the middle of the decade, that exacerbated the eventual crisis.

Rich writes that the real person of the year -- and indeed, the entire decade, is Tiger Woods. He says that Tiger illustrates society's collective willingness to be fooled:

If there’s been a consistent narrative to this year and every other in this decade, it’s that most of us, Bernanke included, have been so easily bamboozled. The men who played us for suckers, whether at Citigroup or Fannie Mae, at the White House or Ted Haggard’s megachurch, are the real movers and shakers of this century’s history so far. That’s why the obvious person of the year is Tiger Woods. His sham beatific image, questioned by almost no one until it collapsed, is nothing if not the farcical reductio ad absurdum of the decade’s flimflams, from the cancerous (the subprime mortgage) to the inane (balloon boy).

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In a related story in this morning's Post (here), Binyamin Applebaum and David Cho criticize Bernanke's misplaced optimism as illustrated by his remarks at a May 2007 Federal Reserve conference:

Bernanke, who was in charge of regulating the nation's largest banks, told the audience that [Fed-regulated banks] were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.

"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."

He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.